Hotel, Tourism and Leisure Asia Pacific Quarterly Update Volume 5 Spotlight: Philippines
ASIA PACIFIC HOTEL REVIEW HOTEL OPENINGS Source: Horwath HTL HOTEL OPENING BY COUNTRY Source: Horwath HTL Opening activity jumpstarted in Q1 2015 with the opening of 74 new hotels, a 76% increase on the same period last year. However, the increase in number of rooms was much more modest at 13%, highlighting that the new hotel openings in 2015 have a smaller average key count of 153 compared to 251 witnessed in Q1 2014. Opening activity is still China centric, accounting for almost three quarters (70%) of hotel opening in 2015. It is worthwhile to note that the significant growth (148%) in China openings compared to Q1 2014 is largely due to one management companying rolling out a significant number of properties under their budget hotel brand (also impacting the average key count above). Q1 2015 witnessed a reversal of the usual APAC management model, the majority of hotels (69%) opened during the start of the year are operated under franchised agreements, instead of the typical management agreement model that dominated in the first quarter of 2014 and throughout 2014. The roll out of the budget brand discussed above, is largely responsible for this shift in management model as all of the hotels in question are franchised. While the trend for new build hotel openings continued from last year, Q1 2015 saw an increase in the number of converted properties when compared to the same period last year, growing from 12% to 27%.
DEAL SIGNING Source: Horwath HTL Deal signing activity got off to a good start in 2015 with 123 hotels signed, only a small drop of 4% when compared to the 128 deals signed in Q1 2014. In terms of the number of rooms, Q1 2015 recorded a marginal increase of 0.2% when compared to Q1 2014, equivalent to an average key count of 241 compared to 231. DEAL SIGNING BY COUNTRY China continued to dominate the overall deal signings, however the number of deals signed fell by 19% when compared to Q1 2014. Malaysia witnessed a surge in the number of deals signed by approximately 125%, while South Korea and Indonesia also showed robust growth of 43% and 29% respectively. India witnessed a harsh drop of 36%. Source: Horwath HTL Note: Deal signing refers to management and franchise agreements signed by the international hotel management companies. Almost a quarter (24%) of the deals signed are on a franchise agreement basis, however, at 76% of all deals signed, management agreements still prove to be the most dominant model of operation. China, South Korea, and Australia are the most common locations for franchising. New build hotels are the preferred property type, accounting for 88% of the new signings in Q1 2015. Conversion properties are less common, only 12% of the deals signed will see an existing property converted and these are mainly Australian deals.
ASIA PACIFIC - HOTEL OCCUPANCY AND ADR ASIA PACIFIC HOTEL PERFORMANCE Performance varied within the Asia Pacific region; several countries within the APAC sub region experienced positive exchange rate fluctuations against the USD and as a result illustrate more positive ADR and RevPAR Growth rates, while North-Eastern Asia experienced more stability in respect to exchange rates, thereby witnessing a less significant shift in these measures. ASIA PACIFIC - HOTEL OCCUPANCY AND ADR ACROSS SELECTED MARKETS Thailand; despite recording a slight decline in ADR (-3.1%), the country was able to show a strong double-digit occupancy increase of +21.0%. This comeback effect was driven by Bangkok recording a significant drop in 2014, as a result of the Military coup. Occupancy for Q1 2015 was at 80%, almost the same as the alltime high in Q1 2013 (80.7%). Japan finished Q1 2015 with a positive RevPAR increase (+12.5%). High occupancy compression, coupled with high land and construction costs, allows rates to continue to rise in most areas across the country. Australia recorded positive growth in all three key performance measures, occupancy (+0.9%), ADR (+4.3%) and RevPAR (+5.2%), in local currency. Similar to Japan and New Zealand, Australia showed limited new supply, economic and tourism growth especially in New South Wales. Malaysia struggled in Q1 2015 with a significant decline in RevPAR (-14.1%) mainly driven by a drop in occupancy (-11.8%). Weakened confidence in tourism remains, following the air incidents in 2014. China showed a slight setback in some markets. Q1 2015 overall picked up the trend shown at the end of 2014, showing 1st tier cities improving with a slower supply growth.
ASIA PACIFIC ACTIVE ROOM PIPELINE BY CLASS ASIA PACIFIC ACTIVE ROOM PIPELINE In the coming years, more than 2,300 hotels with +545k rooms are expected to enter the region. China remains the country with the strongest under-contract room pipeline for the region (+291k rooms), followed by Indonesia (+65k rooms) and India (+53k rooms). ASIA PACIFIC ACTIVE ROOM PIPELINE BY COUNTRY The Upscale class is expected to grow the fastest (+160k rooms), followed by the the Upper Upscale (136k rooms) and Luxury (84k rooms) classes. Within the last 12 months (April 2014 March 2015), the Luxury class experienced the strongest growth in supply (+5.2%), followed by Upper Upscale (+4.34%) and Midscale & Economy class (+4.27%).
SPOTLIGHT: THE PHILIPPINES PHILIPPINES HOTEL MARKET REVIEW HOTEL OPENINGS The Philippines hotel market has been slow to evolve, in part due to the slow tourism market as well as poor infrastructure conditions that deter developers and investors. Although a growing market, unlike its neighbouring countries, tourism is not a significant contributor to gross domestic product (GDP). For example, in in 2013, travel and tourism accounted for only 4.2% of the country s GDP. Opening activity from the selected international management companies that form the participants of this study has been limited, only four hotels opened in 2013 and three hotels in 2014. Similar to last year, opening activity is nonexistent in the first quarter of the year. However as can be seen later in this report, the future hotel market is growing with more than 58 hotels in the development pipeline. DEAL SIGNINGS The Philippines market is segregated by location, with greater activity occurring in the Manila hotel market and slower more selective activity in the regional markets as international airlift and transport issues prevail at the smaller regional airports. As discussed earlier, the Philippines is a low activity market, only 6 hotel deals were signed throughout 2014. Of these, four deals related to new hotels in Manila including a 1000 key property to be located within the mixed use township known as Newport City. Deal signing activity in Q1 2015 was on par with that seen in Q1 2014, however the deals signed this year are for large scale hotels, including a 530 key property in Manila and a 300 key property in northern Luzon Island. The growing economy, new developments in the gaming industry and the government s drive to promote the Philippines should have a positive impact on the tourism market, which will in turn have a positive impact on deals and openings. Source: Horwath HTL Note: the above data does not include all hotels in the Philippines market, Horwath HTL opening and signing data is sourced from selected international management companies. Source: Horwath HTL Note: the above data does not include all hotels in the Philippines market, Horwath HTL opening and signing data is sourced from selected international management companies.
OVERALL HOTEL PERFORMANCE The heavy typhoon that struck the country in the end of 2013 resulted in a slow first quarter of 2014. HOTEL PERFORMANCE BY CLASS The Upscale (+2.4%) and Upper Midscale (+6.4%) classes experienced positive occupancy growth in first quarter, while Upper Upscale (-6.5%) and Luxury classes (-1.1%) declined. The Philippines reported a strong growth in ADR in Q1 2015, offsetting the slightly negative occupancy performance, which resulted in a RevPAR increase to PHP 3,955 (+3.2%). In spite of a strong local currency (PHP), ADR has been increasing significantly in the first three months of the year. Occupancy recorded a decline (-5.8%) in February. Overall supply showed positive growth (+4.8%) when compared to Q1 2014. All classes increased in ADR, with Luxury being the strongest segment (+9.8%), followed by Upscale class (+7.7%). The strongest supply growth in the past 12 months (April 2014 March 2015) was seen in the Upscale class (+8.7%), followed by Upper Upscale class (+4.6%). OCCUPANCY & ADR LEVELS BY CLASS THE PHILIPPINES OVERALL HOTEL PERFORMANCE BY MONTH
HOTEL PERFORMANCE BY MARKET For the purpose of this analysis, the Philippines is divided geographically into the following markets: Metro Manila, which comprises of two submarkets; Makati City and Manila Area. Philippines Area, which comprises of two submarkets; Cebu Metro and Regional Philippines. OCCUPANCY & ADR LEVELS BY MARKET The general supply growth for the Philippines (+4.8%) outpaced demand (+3.6%). The supply trend is mainly driven by the Metro Manila market, which outpaced demand with +7.8% versus +3.3%. However, the Philippines Area market picked up strongly in demand for Q1 2015, especially in the Cebu Metro submarket, where demand grew by +12.2%. REVPAR LEVELS BY MARKET The Philippines Area recorded growth in occupancy levels in Q1 2015 of +8.0% whilst the Metro Manila market declined by -4.0%. In terms of RevPAR levels, all markets are within the range of approximately PHP 3,950. The biggest gap between submarket RevPAR performances was between Makati City (PHP 5,041) and Manila Area (PHP 3,276). The recently additions to supply in the Manila Area added pressure to occupancy, which dropped by -3.0%. SUPPLY AND DEMAND % CHANGE BY MARKET
THE PHILIPPINES UNDER CONTRACT* PIPELINE The Philippines currently has an existing supply of 340+ hotels, with 48k+ rooms. The country recorded an increase of +4.8% in supply in Q1 2015. THE PHLIPPINES UNDER CONTRACT* HOTEL PIPELINE BY PROJECT PHASE The Upper Upscale class showed the largest increase in Q1 2015(+13.2%), Upscale & Upper Midscale classes grew by a more modest +2.4%. With an under contract room pipeline of +28.9% on top of the existing supply, the Philippines has the sixth largest under contract room pipeline within APAC, following Malaysia (4) and Thailand (5) and being ahead of Japan (7), Australia (8) and Vietnam (9). * Under Contract includes projects currently under construction, in final planning or planning phase For the purpose of this analysis, the March 2015 STR Global Pipeline Report has been used. THE PHILIPPINES UNDER CONTRACT* HOTEL PIPELINE BY CLASS
THE PHILIPPINES: MARKET OUTLOOK The GDP growth of the country is currently one of the highest in South East Asia at over 7%. As the nation s capital city, Manila is expected to experience robust growth in the coming years, with key drivers from domestic demand, public spending, manufacturing and real estate development, renting and business activities. We believe this will inevitably help to grow the competitive hotel demand in all segments. The NAIA Terminal 3 expansion is believed to help in relieving air traffic congestion by serving more airlines, faster turnover and therefore receiving more visitors. Except domestic airlines, five major international airlines have transferred their operations to NAIA Terminal 3. In addition, the budget terminal expansion in the Clark Diosdado Macapagal Airport is expected to be completed in 2016. The increase of international direct flights to resort destinations will not only help to ease some domestic traffic from the congested capital, but also help to boost the country s destination tourism. The Philippines ranked the second most important BPO destination in the world by Tholon s survey in 2014. In recent years, the rebranding of BPO into BPM (Business Process Management) gives it the identity of being a full-service value provider rather than an outsourcing industry that plays only in the lower-end of the services spectrum. This is especially true in terms of IT-BPM industry, which not only involves voice BPO sector, but also nonvoice/kpo, health information management outsourcing, engineering software outsourcing, animation and even game development sectors. The BPM FTEs (Full Time Equivalent) in Metro Manila represents almost 80 percent of the total current FTEs in the country, which further shows its importance in supporting the corporate business demand of the identified hotels. Manila will host the Asia-Pacific Economic Cooperation (APEC) in November, this will largely help to generate more hotel room night demand in both business and leisure sectors. As can be seen from the pipeline, Manila accounts for most of the new additions to supply, half of which, are casino resorts in Manila Bay and Pasay area. We believe these integrated-casino resorts will generate different types of clientele and induce new source of leisure demand, which will transform the tourism industry. However, security issues remain a threat to the tourism outlook. Travel advisories against the Philippines causes concern amongst potential tourists and visitors. The United States, United Kingdom and Australia have continuously re-issued travel warnings to the country. The prevalence of terrorism and political instability affect the country s image, as well as the perception of safety. This document has been prepared in good faith on the basis of information available to Horwath HTL and STR Global at the date of publication. The content includes analysis and commentary that are the sole opinions of our research teams and are not to be construed as investment advice. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Horwath HTL and STR Global do not guarantee or warrant the accuracy or reliability of the information and encourage readers to independently assess the relevance and accuracy of the information before taking any action based on the information contained in this document. Horwath HTL and STR Global will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication. The foregoing does not replace, supersede or amend any other disclaimers or warranties that may appear in this publication.
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